What is a Special Needs Trust and how can I benefit from it?
Quick Answer
A Special Needs Trust holds assets for the benefit of a person with disabilities without those assets counting as theirs for benefits purposes. It lets a family provide for a loved one without costing them Medicaid, SSI, or the housing and care those programs pay for. The beneficiary never controls the money directly, and that is exactly what preserves eligibility.
The problem it solves
A parent leaves money to a child with disabilities, meaning to make life easier.
Instead the inheritance disqualifies that child from the Medicaid and SSI they rely on for housing, care, and medical costs. The money gets spent down, benefits eventually resume, and years of savings have been converted into a gap in care.
Nobody did anything wrong. Nobody was told.
How it works
A trustee holds and controls the assets. The beneficiary receives the benefit, not the money.
Distributions pay for things that improve quality of life beyond what benefits cover: therapies, equipment, education, travel, technology, a companion, a computer, a vacation.
Because the beneficiary cannot demand or control the funds, the assets are generally not counted as their resources.
The two main kinds
A third-party trust, funded by someone other than the beneficiary, usually a parent or grandparent. This is the one most families need, and it is what belongs in your estate plan. Whatever remains at the beneficiary’s death can pass to whoever you name.
A first-party trust, funded with the beneficiary’s own money, such as a personal injury settlement or an inheritance they already received. These carry a Medicaid payback requirement at death, and there are age and establishment rules.
The distinction matters enormously, and the wrong one costs the family the remainder.
What it can and cannot pay for
Distributions handled incorrectly can still reduce benefits, particularly where they cover food or shelter directly.
That is why the trustee matters. This is not a role for somebody who will write checks to the beneficiary and hope for the best.
The sibling problem
Families often plan to leave everything to another child with an understanding that they will look after their sibling.
Please do not. That money is legally the sibling’s. It is exposed to their creditors, their divorce, and their bankruptcy, and if they die it passes under their will to their own family.
Consider two brothers. One is a successful business owner. The other has battled his demons his entire life and is on Medicaid for long-term care related to alcoholism. An inheritance of a couple of hundred thousand dollars kicks him off the Medicaid paying for his treatment. He cannot simply refuse it either, because disclaiming can trigger its own Medicaid penalty. The result is that he loses his care and has cash available to buy more alcohol.
A trust is the structure that prevents that.
The mistake that undoes everything
Beneficiary designations. A retirement account or life insurance policy naming the person with disabilities directly bypasses the trust entirely.
You can draft a perfect special needs trust and defeat it with one out-of-date form at an insurance company. Check every designation.
Also tell grandparents and other relatives, because a well-meant bequest in someone else’s will can cause the same harm.
Think past your own lifetime
Name successor trustees. Write down how the beneficiary communicates, what they need day to day, and who knows them. Consider whether a professional fiduciary belongs in the structure.
This is about continuity of care and dignity, not only about money.
Your next step
Schedule a complimentary 15-minute Strategy Session at 404-549-5001, and please do it before anyone names a beneficiary.
More is on our Special Needs Planning page.
Related questions
- What are Beneficiary Designations?
- How can I protect my beneficiaries and their inheritance from lawsuits, creditors, bankruptcy and divorce?
- What is a Spendthrift Provision in a Trust?
- Whom should I choose as trustee of my Trust?
This page is presented for educational purposes only and nothing on it should be treated as legal advice. What applies to you is very fact specific to your situation and your family. Our attorneys are licensed in Georgia and Michigan. This area of law has frequent statutory and policy changes.
Looking to find an experienced estate lawyer in the Georgia area who is skilled in asset protection and estate plan preparation? Shannon Pawley is an attorney in Georgia with expertise in estate planning and asset protection. Shannon can provide assistance with creating an estate plan to include making a will and how to establish a trust properly. If you have questions about asset protection or questions about making an estate plan, reach out to Shannon and she will be glad to help answer all the estate planning questions you might have!
